Top 10 most profitable hospitals around Indianapolis

March 20, 2014
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Note: While the rank order of hospitals' profits in this post is accurate based on 2012 financial results, the actual profit margins below may appear abnormally high because of three key things: 1) Many hospitals received a special settlement payment from Medicare in 2012 that was not repeated in other years; 2) Indiana hospitals in 2012 received 18 months worth of state payments from a program known as the Hospital Assessment Fee, rather than 12 months of payments; and 3) Most of the hospitals' financial results in this post do not include losses they incurred in their employed-physician practices. Those losses are accounted for separately, in most cases.--J.K. Wall

No wonder St. Vincent Health is building a 96,703-square-foot women’s health addition to its Carmel hospital.

That campus is the second-most profitable hospital in central Indiana, according to the latest fiscal reports filed by most hospitals with the Indiana State Department of Health. Excluding its accounting charges for depreciation and amortization, St. Vincent Carmel is generating a 31 percent profit from its operations.

Not bad for a “not-for-profit” hospital, huh?

I lined up the 2012 financial results of 30 hospitals, located in an area that stretches from Lafayette to Bloomington, over to Columbus and up to Muncie. I compared them by excluding depreciation and amortization, since those on-paper charges can vary considerably based on the age of the hospital.

The results, as you can see here, didn’t exactly match my expectations.

Ten Most Profitable
1.    Indiana Orthopaedic Hospital: 35.1 percent
2.    St. Vincent Carmel Hospital: 30.9 percent
3.    Community Hospital-Anderson: 28.3 percent
4.    Franciscan St. Elizabeth Health-Crawfordsville: 24.9 percent
5.    Franciscan St. Francis Health-Mooresville: 24.3 percent
6.    Community Heart Hospital: 22.4 percent
7.    Indiana University Health West: 21.4 percent
8.    St. Vincent Heart Center of Indiana: 21.4 percent
9.    Community Hospital North: 21.0 percent
10.    Franciscan St. Francis Health-Indianapolis: 19.0 percent

It’s no surprise that the orthopedic hospital was on top—hip and knee replacements are still highly lucrative procedures. Keep in mind, however, that the orthopedic surgeons that run that lucrative hospital, pay taxes on their earnings.

Nor is St. Vincent Carmel much of a surprise. It derives nearly 85 percent of its revenue from private, rather than government, sources. That’s the highest in all of central Indiana.

(Full disclosure: I have handed a chunk of money to St. Vincent Carmel via my employer sponsored, health savings account-based insurance policy with Anthem Blue Cross and Blue Shield. That is where both of my sons were born.)

But after the top two, things get interesting. Consider that the next three hospitals are in Anderson, Crawfordsville and Mooresville. Mooresville makes sense because Franciscan has its orthopedic surgeons stationed there.

But Crawfordsville is a surprise to me, especially considering how poorly the hospital in the very similar community of Greencastle—Putnam County Hospital—is doing, as you can see here.

Ten Least Profitable
21. Community Hospital East: 12.5 percent
22. Hendricks Regional Health: 11.2 percent
23. Columbus Regional Hospital: 10.1 percent
24. St. Vincent Hospital-Anderson: 8.1 percent
25. IU Health Arnett: 7.9 percent
26. Johnson Memorial Hospital: 7.9 percent
27. St. Vincent Indianapolis Hospital: 7.7 percent
28. Riverview Hospital: 6.1 percent
29. Putnam County Hospital: 0.7 percent
30. Eskenazi Health: -23.6 percent

Anderson is both surprising and isn’t. It's not Indiana's wealthiest city, by any stretch. But in 2009, Anderson ranked highest in the nation for spending by employer-sponsored health plans—$7,231 per person per year.

But it’s interesting to me that Community is cleaning up in Anderson, where it competes directly against St. Vincent, but its Indianapolis hospitals are in the middle of the pack.

And St. Vincent, in spite of having bottom 10 hospitals in Anderson and Indianapolis, is dominating in Hamilton County, the fiercest hospital market of all.

St. Vincent was the first of the Indianapolis-based hospitals to open a hospital in Carmel—way back in 1985. And that appears to have paid off.

Riverview Hospital in Noblesville seems to be struggling a bit in the midst of all the competition, which now includes both IU Health and Franciscan, as well as St. Vincent.

IU Health North, while lucrative, is still well back from St. Vincent, as you can see here:

The Middle 10
11.    IU Health North: 18.1 percent
12.    Community Hospital South: 18.0 percent
13.    St. Joseph Hospital (Kokomo): 17.8 percent
14.    Franciscan St. Elizabeth Health-Lafayette (East & Central): 17.6 percent
15.    IU Health Bloomington: 17.6 percent
16.    IU Health Downtown (Methodist-University-Riley): 17.4 percent
17.    Major Hospital (Shelbyville): 16.5 percent
18.    IU Health Morgan (Martinsville): 15.0 percent
19.    Witham Health Services (Lebanon): 14.5 percent
20.    IU Health Ball Memorial (Muncie): 13.2 percent

If you tally all these up, you’ll find that just seven of these 30 hospitals have profit margins on their core business of less than 10 percent.

The hospitals may object that I excluded their depreciation and amortization. And they have a valid point, because those hospitals’ investments in buildings and equipment have been critical to their ability to earn these profits.

But I looked at the numbers this way, somewhat following the path taken by Steven Brill in his Bitter Pill article last year, because it allows us to see how much hospitals are making on their core medical services.

When depreciation and amortization are added back in, 17 of the 30 hospitals had profit margins in the double digits.

Either way, it shows that hospitals in and around Indianapolis were doing quite well. At least in 2012. We’ll see how they did in 2013, once those reports become public.

Two notes on my calculations

I calculated profit on operations by taking the excess revenue over expenses generated by each hospital, which excludes any gains from investments or other non-operating gains. I then subtracted the expenses attributed to depreciation and amortization. The number I got from that calculation, I then divided by each hospital’s total operating revenue to generate an operating margin. You can see all my numbers in this spreadsheet.

Community's Howard Regional and Westview hospitals are not included in my analysis because the state has not posted a 2012 fiscal report for them. The same goes for Hancock Regional Hopsital in Greenfield.

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  • Open eyes
    Excellent & hope to see this on all major segments of healthcare to include pharmacy, insurers, medical supply & services.
  • IOH also lowest charges
    Yes, IN Ortho Hosp may be most profitable, however their charges are the lowest and their quality is high. . I don't work there, but do work in the industry and see the data.
  • New Hospitals in Fishers
    It will be interesting to see where the new hospitals on Exit 210 in Fishers fall into the rankings - St. Vincent Fishers and IU Health Saxony.
  • Investments / Spreadsheet
    The spreadsheet does not open. Also how much money do the top hospitals have in investments?
    • Why no bad debt at two hospitals?
      Eskenazi Health and St. Vincent Heart Center have $0 bad debt listed. I find that hard to believe in Eskenazi's case, certainly. And even the Heart Center seems like surely it would have a little bit of bad debt.
    • Complaints VS. Gross Profit %
      The real data (matrix)that most people would most care about would be # of complaints filed on these hospitals, plus # and amount each hospital over charged insurance cos. and medicare and # of law suits filed against each hospital for malpractice and wrongful death. All these numbers are available if you are interested. Your review involving these hospitals would show a very different picture.
    • Excellent Article: More to Do
      JK - Excellent macro analysis analysis. Thank you! I think this type of analysis is what the ACA is hoping will begin to emerge. It would be useful to see how both (a) more routine procedural costs/prices (hip replacements, appendix removals, etc.) and (b) socioeconomic demographics align with the profitability of these hospitals. You already have some of it developed but a more complete picture would be an eye opener. I am not sure the label of "non-profit" is applicable anymore in the health care industry as you show in this article and as shown in the Steve Brill article that you reference. It does not appear that being a non-profit has any benefit in terms of costs to the patient although non-profits are supposed to not turn away anyone in need. Please keep up the excellent reporting on this issue. It needs more visibility.
    • Capital Costs
      Accounting rules include depreciation and amortization as expenses. Alternatively, cash flows would exclude those items, but include capital expenditures. I know Steve Brill did not include either and his footnoted justification was that he spoke to one Chief Operating Officer and that was what he was told was most relevant. Coming from a Finance professionl, to not include either depreciation or capital expenditures is simply wrong and leads to incorrect conclusions. If our media is to help safeguard and inform us, shouldn't we expect better from them?
      • To Keith
        Thank you for pointing out that a normal cash flow analysis would have included capital expenditures. I am curious, as a finance professional, would you view a cross-hospital comparison that included either depreciation or capital expenditures as providing an apples-to-apples comparison? Or do those categories vary so much from hospital to hospital that they obscure what's going on in the core business? My conclusion was that it would not be an apples-to-apples comparison, which is why I left them out. I also left them out because part of our present discussion about health care costs is about whether hospitals' previous expenditures' on buildings and expensive equipment have been 100 percent necessary. I thought it would be valuable to see what the financial picture looks like before hospital executives decide to make those decisions. But please tell me if you think that is completely illegitimate.
      • To Louis
        My analysis includes no gains, or losses, from investments.
      • Community Hospital Anderson
        I work at CHA and I can tell you why the hospital makes money...the OR's are the most efficient in the state and they do high dollar procedures with a surprisingly high volume of neurosurgical cases. It has become a Mecca of sorts for back procedures in the area, which includes Indy. Most hospitals derive the majority of their revenues directly from OR's, and CHA's are great!
        • Time to pay income taxes
          It is past time that these "non-profit" hospitals paid income tax. Either that or start paying their executives in the same range that executives are paid at for-profit hospitals (I'm not talking about specialty surgical centers but full-blown hospitals). The argument that non-profits treat the indigent doesn't really mean anything anymore. Look at the small % that is to their overall business model.
        • What Is the Basis for CHA OR Cost Comparison?
          Jeb - How have you determined that CHA has the most efficient ORs in the state? I am not disagreeing with you but wondering where you obtained this comparative information and whether the analysis was an apples to apples comparison. The good part about all these comments to the article is that they begin and reflect public thoughtfulness about the issue of comparative costs for medical care. This is much needed and long overdue. As a consumer, I am in the wilderness. I just received a $200 bill for basic x-rays of my left thumb and was dumbfounded at the cost; I don't know if they are reasonable or not although BC/BS disallowed $75 of the initial $275 billing.
        • Response for J.K.
          In response to J.K.'s question, no, depreciation and capital expenditures could not be considered interchangeable for comparison purposes. My opinion is that including depreciation/amortization is the best approach if the goal is to compare hospitals to one another and to evaluate their profitability. Showing profitablity that is not reduced for all expenses is a distortion that readers have a hard time identifying and and an even harder time factoring in the impact thereof.
          • To Keith
            Thanks for your feedback. And if readers are interested, here are all the hospitals' operating margins when depreciation & amortization are included: 1. Indiana Orthopaedic Hospital: 33.6% 2. St. Vincent Carmel Hospital: 28.2% 3. Community Hospital-Anderson: 24.6% 4. Franciscan St. Francis Health-Mooresville: 20.6% 5. Franciscan St. Francis Elizabeth-Crawfordsville: 20.0% 6. Community Heart Hospital: 19.1% 7. St. Vincent Heart Center of Indiana: 18.4% 8. IU Health West: 17.3% 9. Community Hospital North: 16.4% 10. Franciscan St. Francis Health-Indy: 14.3% 11. St. Joseph Medical Center-Kokomo: 13.9% 12. Franciscan St. Elizabeth Health-Lafayette (East & Central): 13.3% 13. IU Health North: 13.2% 14. IU Health Bloomington: 13.0% 15. Community Hospital South: 12.5% 16. Major Hospital: 12.4% 17. IU Health Methodist-IU-Riley-Saxony: 12.3% 18. Witham Health Services: 9.2% 19. Community Hospital East: 8.9% 20. IU Health Ball Memorial: 8.9% 21. IU Health Morgan: 7.8% 22. St. Vincent Indianapolis Hospital: 6.2% 23. St. Vincent Hospital-Anderson: 5.9% 24. Hendricks Regional Health: 5.6% 25. IU Health Arnett: 4.2% 26. Johnson Memorial Hospital: 2.6% 27. Columbus Regional Hospital: 2.3% 28. Riverview Hospital: 0.2% 29. Putnam County Hospital: -4.5% 30. Eskenazi Health: -35.0%
          • A piece of information for both Keith and J K Wall
            For most,not all i.e. mfg. D&A expense is rarely included in operational gross profit figures. It is down in the "Other Inc., Other Exp line item. This is primarily do each enitiy's capital structure is very different as well as most should have a reserve set up for anticipated capital expenses. These expenses should never have anything to do with evaluating a company's operational income. It is extremely important to be definitive in what is included in gross profit margin and/or operational profit or margin.Finding out what a company's return on invested capital or on equity is a better indicator to evaluate the CEO's performance as a whole including their hospital.Maybe one hospital leverages debt better than another.
            • Why Don't You Evaluate Insurance Companies?!!
              JK -- why don't you start doing an analysis of insurance companies and their total profits?! Physicians and Hospitals are directly involved in the care of patients and strive everyday to better the care for their patients. You should be including depreciation and amortization in the calculation, to say nothing of the future costs of healthcare. We have great healthcare in Indiana due to the competition among providers. Hospitals in particular seem to carry the continued brunt of your "analysis" (ahem, attacks). Insurance companies are not involved in the care process yet profit immensely. If we want to lower healthcare costs, we should finally take a look at the real problem in the system -- insurance companies!
              • To Indy Guy
                No worries, insurance companies are on my list for a profit margin analysis.
              • Insurance shmurance
                Most insurance companies are for profit. They pay taxes and have a fiduciary responsibility to their shareholders! I do think they actually serve no purpose to the overall well being of our country but at least when they lay off people they can claim they are serving someone( their shareholders)
              • Bravo JK
                We'll done. I am not sure when in the past 18-24 months you switched from coddling to in-depth serious journalism. AWESOME. It is time Americans demanded fiscal responsibility from their health care systems. Ask yourself and your readers a simple ethical question: is it reasonable for non- profits hospitals to make a double digit profit margin, pay no taxes and at the same time to scream "henney Penney the sky is falling"? Remember , these numbers include all of their free charity care. Thanks Jk keep up the good honest journalism
              • What's your conclusion?
                JK,I am not taking a side here but not sure what it is you are saying. I do not believe they necessarily are, but if the top profitable hospitals actually cost the consumer less but are more efficient from an operating expense perspective, why shouldn't they be more profitable? You take out depreciation and amortization but not debt service. If an institution borrows more than another doesn't that impact your results? Couldn't someone slice the data including/excluding any number of things and come up with whatever conclusion they want?
              • Correct Dr. O
                Dr. O is correct. Debt service should not be included in operational profit analysis or in Gross Profit analysis. Again that line item would be downstairs in Other Inc., Other exp. Capital structure with combinations of debt and equity have nothing to do with gross profit analysis or income from operations analysis.
              • EBITDA
                In the for-profit healthcare space, we compare hospital performances between entities by excluding Interest, taxes, depreciation and amortization; this is how Wall Street expects to compare hospital performance. It appears as though your approach is similar, and is likely a great way to make this comparison.
              • Hospital
                St E
              • Not for profit
                Mr Wall wrote, "St. Vincent Carmel is generating a 31 percent profit from its operations.Not bad for a “not-for-profit” hospital, huh?" Perhaps Mr. Wall, writing for a business journal should take into account the business definition of a not for profit(NFP) To oversimplify,NFP's do not pay shareholders. Simply that. NFP must make money that they in turn use to invest in their organization. Not for profit DOES NOT mean they do not or should not make excess income over expenses. Mr. Wall's thumbing his nose at NFP's percentage of income over expenses is especially troubling in that he excluded depreciation and amortization, the two things that an NFP would devote the most of it's excess income to, since an NFP must invest its excess in itself.
                • Least Profitable
                  I can tell you why Community Hospital East landed on the least profitable list. The executives who run things have gradually shipped all of the profitable departments and services to Community Hospital North. East used to be a 800 bed hospital but it's a mere shadow of it's former self at around 70 beds. It's just like any other business if you deliberately try and make a institution look bad by removing the profitable departments that's not demographics but a plot to eventually close something down. That's exactly what Washington Square has done. Take out all of the wonderful shops and leave things half empty forcing customers to go somewhere else. But to get back to Community Hospital East the neighbors who donated their money back in the 1950's to have a modern full services hospital in their area are being cheated with a health care facility that is almost like a small clinic. It's a betrayal of the trust that eastsiders have in their hospital. North has sucked all of the life out of East. And it was deliberately done.
                • On hospital profits
                  It's funny to me how simply describing hospital profits is quickly interpreted by some as "attacking" them. I have written before that I have no problem with hospitals making money while providing great care for me and others. So I am not attacking hospitals. What I am questioning (and, you could say, attacking) is the hospital industry narrative that hospitals are always hard-up and barely scraping by. That narrative IS TRUE for SOME hospitals, but few to none of those hospitals are in the Indianapolis area. In the Indianapolis area, hospitals have had such pricing power they are charging their privately insured customers 264% more than the federal Medicare program pays, whereas in some other markets around the country, Medicare is a better payer than private insurers. Hospitals can argue that they use their profits in lucrative markets to subsidize facilities in poorer markets. And that is true. It's also true that hospitals bring poorer hospitals into the lucrative contracts they have negotiated, via their pricing power, thereby increasing revenue even in poorer markets. It's my guess that that is what has occurred in Crawfordsville, allowing that hospital to be far more profitable than the stand-alone hospital in Greencastle. Americans spend more than $2.5 billion a year on health care, and more than half of that money flows to doctors and hospitals. Revenue to the health care sector has grown for decades at twice the rate of inflation. This is not a poor industry. If providers can use that money to provide great care and make nice profit margins, more power to them. But to the extent they are doing that, they should stop crying poor. Or, at the very least, they should clearly state how those large profits at some facilities are used to provide access to care in markets or to patient segments that would otherwise not be served. That is, after all, why most of our hospitals are not for profit and do not have to pay incomes taxes on their profits. But for hospitals to pretend that they make miniscule margins all across the board is simply not reality. For Indianapolis-area employers, which are IBJ's primary audience, it is important for them to know that the health systems in their area have been, at least before 2013, doing quite well financially.
                  • Who's Defensive?
                    JK, don't know if you were referring to my response or others, but I have no objection to your opinion that hospitals in Indianapolis are doing well. As an accountant, I was commenting on your financial analysis methodology, it just seems to suit your objective so please don't be defensive. Are you suggesting we should have more hospitals in Indianapolis in order to drive competition? Some studies indicate that excess capacity may drive lower unit cost but higher utilization. In addition, there are a number of rural hospitals in Indiana that struggle to be self sufficient, and if the push for healthcare reform continues, it may be even more difficult. Are you suggesting that an affiliation with a larger system may not be a good thing? Medicare payments vary significantly from market to market as does Medicaid which you do not reference. Like it or not, Commercial reimbursement makes up for these differences. No easy answers.
                  • To Dr. Obama
                    No, I wasn't referring to your comment. I thought your comment was exactly right. I should have examined the hospitals using EBITDA. I probably will write an update that does that.
                    • To JK
                      Thanks for your response, be careful or I may start to question my jaded view of journalists. You do a good job, keep talking about all the important healthcare issues.
                    • Top 10 Profitable Hospitals
                      If you haven't already seen from IBJ...

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